Start Money Smart

An Allowance is Not Free Money

2009-06-01T06:35:00.000-07:00

Giving your kids an allowance is not a bad thing. We’ve just lost sight of what it’s supposed to be about. Allowances are not free money for your kids. Allowances are not a birthright. An allowance will not spoil your child. Allowances are necessary to teach your child how to manage money. We’ve raised a whole generation of people that did not receive allowances or were not given allowances for the right reasons, which is why we have a whole generation of adults who don’t know how to manage money.

What’s the appropriate age for kids to receive an allowance? As soon as your child starts asking you for money, and you start giving them money to buy things. That’s when they should start keeping track of their own money (with your guidance) so they’ll have enough for the stuff they need. The goal is not to control what they have and don’t have. The goal is for them to be able to make decisions about what they can and can’t afford based on their income. Pay attention to what you spend on your child. If it’s something they can buy on their own, let them.

Should we make kids work for the money? Absolutely. I’m a big fan of working for any money you receive. But please understand – this is not the point! I truly believe that making kids work for their money doesn’t really teach them to manage their money any better than kids who get it handed to them for nothing. They may appreciate it a little more, but they won’t necessarily manage it any better. We have a whole country of adults who work for their money every day and they don’t necessarily manage their money well.

How do we teach kids the value of money? I don’t believe allowances will really teach children the value of money. Allowances should be given to teach kids how to manage money. The only way a child will grow up understanding the value of money is if they see what it takes for them to live. And the only way they’re going to see that, is if you show them your bills. This is a whole other sensitive topic for many parents. I believe you should show kids what it takes for your household to run financially. Let them see the amount of money that comes in and goes out. Let them see the bills and understand that your “big paycheck” doesn’t all just go in your pocket. Once they understand what you need to do to keep the house running financially, then they’ll understand what it means when they ask for an $80 video game or a $100 pair of shoes.

How much money should we give our kids? First figure out what you already spend on your kids from day to day. How much do you give them for lunches, snacks, treats, mall trips, toys, clothes, special school events, sports, dances, etc. Then decide what you think they can handle paying for themselves. Total up the cost and give that to them weekly, bi-weekly, monthly, whatever frequency you prefer. Don’t be scared to make them responsible for even the big things like school supplies. The more they’re able manage the more you’re preparing them for the future. The trick is you being able to come up with a realistic dollar amount.

How do we teach kids to manage money? Now this is the whole point of an allowance so make sure you approach it with this mindset. You give them income and teach them how to manage that income so they can cover their expenses.

Budget Reports - One of the best ways to do this is insist on a ‘budget report’ before you give them their allowance. Make them write out how they plan to spend their money before you give it to them. If they haven’t thought about it and don’t know what to write, don’t give them their allowance. Too many people get money everyday from their employer without thinking about what their going to do with it. This is a great time to talk to them about buying needs vs. wants, saving and giving to charities based on your families personal beliefs. And then later, before you give them their next allowance payment, talk with them about how they did compared to their budget.

Let them Pay for Big Things – Many parents think that allowances should be for the little things that kids want and that the parents should manage the big things like prom dresses, sports equipment, summer camp. Let your kids handle paying for those things too. If you know you’re willing to spend $200 on a prom dress for your daughter in May, then price out her allowance to include that expense as early as the previous Fall. Remind your child that they will be responsible for this purchase and it’s up to them to save for that expense. Throughout the months they’ll be tempted to spend the money on other things, but they’ll have to learn to set some money aside for that big expense coming up. This should all be part of their budget. And if they spend all their money and don’t have enough for the dress, they’re out of luck and have to find another option.

Going through this process will teach them what they really need to know about managing money when they get older. In fact, I’ll bet that most parents need help with these same money management skills themselves.

How Do I Know What I Can Afford

2009-05-01T13:14:00.000-07:00

Don’t buy stuff you can’t afford…sounds pretty simple, right? Have you seen the Saturday Night Live skit? “If you don’t have any money, you should not buy anything… mmmm.” If this concept is so simple, why do we have millions of Americans in millions of dollars of debt? Are we all just greedy? lazy? stupid? I don’t think so. I think most people have no idea what they can and cannot afford.

How do you determine what you can and cannot afford? Here are some answers I’ve heard:

I call the bank. If the money’s in there, I can afford it. If its not, I can’t.
People with good salaries can afford whatever they want. People with bad salaries can’t.
I buy everything on sale.
I look to see if I have room on my credit card.
People who have nice things – a nice car, live in a nice neighborhood, have a good education – they can afford expensive stuff.

The truth is all these answers are completely wrong.

One of the biggest money myths we have in our society is the belief that people with more money can afford things and people with less money cannot. Think about it. If you make 100K a year, drive a fancy car and live in a nice house, your money will probably be going to pay for the car and the house. Realistically you can have less money in your pocket after paying all your bills than someone who makes $10 an hour, takes the subway to work and lives with his parents.

However, most of us don’t look at all our expenses when trying to figure out what we can afford. We look at our income, our assets, the item we want to buy, the amount of money we can borrow, our mood or feeling at the time, and other things that have nothing to do with issue.

How do you determine what you can afford? You do the math! You add up all the money you plan to make and subtract all the money you plan to spend. The amount left is what you can afford to spend. Does that sound simple? It is, but most people I know have no interest in doing this. In fact, a lot of people are downright terrified to do this.

Many of us have a pretty good idea what we plan to make, but how are you supposed to know what you plan to spend? Well, keeping track of what you’ve spent in the past is a huge indicator in determining what you’ll spend in the future. But many people not only don’t like to track their spending, they don’t want to. But if you’re ever going to know what you can afford, you have to know what you’re going to make and what you’re going to spend. Some people call this process creating a budget (aaarrgh, I said a scary word!).

Our society is pretty much designed to not encourage people to think this way. Most of the money we loan to people is loaned without asking anything about their expenses. We ask people what they make, what they have, we look at their credit, and then we give them more money and stuff. Whether they can afford to pay us back is assumed. We assume if someone has a lot of money, they can afford to have more stuff.

This is exactly why we're in the economic crisis we are in today. We need to stop looking at income and assets as a basis for what we can afford. We need to teach people not to be scared to track their expenses. Only then can we expect to get out of this crisis and not return!

Are Credit Cards for Emergencies Only?

2009-04-01T11:18:00.000-07:00

What is the correct answer to this question?
Credit cards should only be used…
1. in case of an emergency.
2. for large purchases that you really need.
3. to prove that you know how to pay bills.

In case of an emergency – NO! I used to firmly believe this. Why build up a savings account if you have room on a credit card? If our water heater breaks or I have to make an emergency trip to see a sick relative, I can just put it on a credit card. I used to believe that it was responsible to not use my credit card for frivolous things like eating out or new shoes, and to always keep room on it for important emergencies.

The onset of this Economic Crisis has taught many of us the mistake of this belief. For many people, the emergency was losing their job! Does it make sense to add ‘being in debt’ to ‘not having income’? Of course not. Credit cards are not to be used for emergencies. That’s what savings accounts are for. You build up a savings account so you can use that money in case there’s an emergency.

For large purchases – NO! I heard a financial writer provide this logic: as long as you were buying something important that you would be using for a long time then it was okay to put it on a credit card. For example, major appliances and furniture for a new apartment. I guess the logic behind this was that it was okay to pay interest on something as long as you get some use out of it.

Yes, there are some reasons where debt makes sense. Home ownership, student loans, even auto ownership, to a point (people don’t need a new car every three years). Any other purchases, in my opinion, don’t justify going into debt. If you need something and you can’t afford it right now, you live with out it, until you can save your money to buy it. This is a radical concept nowadays in the age of I want what I want now without having to pay for it. And since most banks and stores benefit from consumers going into debt, we, as a culture, encourage it.

So if you don’t have the cash for a sofa for your new apartment – sit on the floor. If you don’t have the cash for the latest electronic gadget, use the old gadget. If you don’t have the cash to eat out a restaurant, defrost something that’s in your freezer.

To prove that you know how to pay bills – That’s it! That’s the only reason to have a credit card. If you ever want to borrow money, rent an apartment or apply for a job, there’s a good chance someone will ask you for proof that you know how to pay your bills on time. What’s the proof? Good credit. So how do you get good credit? Not from being rich. Good credit has nothing to do with how much money you have. Not from being smart, or popular, or handsome – good credit comes from showing that you can pay your bills on time every month. That means you should create a bill that you can pay every month.

Credit cards are great for that. Only charge on your credit card what you KNOW you can pay off when the bill becomes due. In my mind, groceries and gas work perfectly. Charge groceries and/or gasoline throughout the month and then pay the bill off, on time, by the due date. You will establish and maintain good credit. Someone who charges these minor things on a credit card is not irresponsible. What’s irresponsible is assuming you’re supposed to maintain a balance on a credit card.

We need to change our mentality about credit cards and debt in our society. Only then can we make it out of this economic crisis and hopefully not find ourselves repeating these mistakes!

What Are We Teaching??

2009-03-10T14:20:00.000-07:00

There are two main issues that I noticed when I got into this financial education world, 1) there is already a TON of educational material out there on personal finance, and 2) most people don’t read it. It’s a shame really, because there is a lot of good information out there. But the truth is, if you’re sitting down reading about how to “Pay More Attention to Your Financial Life” you’re probably already paying attention to your financial life.

How do we reach all the people that don’t want to think about their finances? Those are the people that don’t save, go shopping instead of paying a bill, or use money as a way to stroke their ego. How do you get them to open a book on paying bills and budgeting?

Keep it short
Would you read a 200 page text book on how to budget and pay bills? I wouldn’t either. When someone hands me a book I’ve already determined in my mind if this is something that’s going to take me awhile to read or if this is something I can flip through quickly. If it’s going to take me awhile, I better want to read it. Most people do not want to read about how to manage their money. You have to make the book short, easy-to-read, and to the point.

Add a lot of pictures
Sounds juvenile, right? But studies have been done showing how visual learning impacts retention. And many people will agree that if someone’s not going to read the text portions of a book, they’ll flip through and look at the pictures. So I think you should make sure the pictures tell a great story.

Comic strips are a great tool for capturing visual interest as well as telling a story. Do comic strips have room in the financial education world? Absolutely! I hear stories everyday about people with money who make decisions with their checkbook or their credit cards that would make a great comic strip. The goal with my book is to capture the reader’s attention with a comic strip and then add text that will explain the details.

Relevant topics
Now this is one significant problem with a lot of the education material out there that teaches personal finance. The topics are horrible! “How the Banking System Works”, “What is Discretionary Income”, “How to Calculate Your Net Worth”. Many people can go their whole lives, managing their personal finances just fine without knowing the answers to these questions. Now, I’m not saying we shouldn’t teach these things, but somehow we’ve missed teaching topics people really need to know, “The Difference between Debit and Credit”, “How to Stay Organized so Bills Get Paid”, “Which Credit Card Should I Pay Off First?”.

When we make materials that address the basics of personal finance and insist that we teach everyone – students, parents, immigrants, adults of all socio-economic classes – then people will really have the information they need to make good financial decisions in their life.

Check out my latest book Paying Bills is NOT a Money Issue. Available through our website StartMoneySmart.com.

Living in the Dark

2009-02-04T20:31:00.000-08:00

If I told you there was a room that you had to enter – you had no choice – you must enter this room. And I told you that what is in this room would scare you – no avoiding the fear – you will get scared. Would you rather have the lights on or the lights off when you enter that room?

If you said “lights on”, why? Why would you want to see something that you know is going to scare you? Since you’re going to be scared anyway, wouldn’t it be better to not know or see anything? Or would it be better to get a clear picture of what’s causing the fear so you can prepare for it and deal with it?

I meet people every week that are choosing to keep the lights off in their financial life. There’s no avoiding going into the room, but they’d rather not see the cause of their fear. They choose to sit in the dark, afraid.

There’s the doctor who frequently goes on vacation whenever he gets stressed about the drop in patients, and therefore income for his practice, knowing that the vacation trips cost him even more money.

There’s the single mother of three who finally has a good paying job and can afford to get out of debt, but is scared to take that step because that may mean she’ll have to grow up and really plan for her financial future. No more handouts.

There’s the professional man, ten years away from retirement, forced to spend all of his savings after he was laid off from his job two years ago. But now that he has a new job, he doesn’t see the point in trying to build up his savings again, so he goes on shopping sprees buying clothes and gifts for his girlfriend.

Even if these true stories don’t sound like somebody you know, there are plenty of people that decide not to open mail, not to think about saving, not to return a bill collector’s phone call, not to sit down and make a list of their bills – because they don’t want to see what will scare them. They rather enter the scary room with the lights off. You have the option to turn the lights on.

So how do you do it? How do you start the process of dealing with something that you know will scare you? Well, when it comes to financial matters the actual actions you have to take are much simpler than expected.

1) Gather up all your bills
2) Make a list of all your expenses
3) Do the arithmetic

Now, stop right there...don't move...does it sound too easy? This is an incredibly difficult process that most people don’t do. Many people can’t even see the benefit in doing these things. But every time I sit with a client and help them go through this process they always feel better about their financial life afterwards. It’s amazing. Just taking the time to look at it. Face the fear.

A Real Solution to the Economic Crisis

2009-01-04T04:50:00.000-08:00

We’ve entered the New Year with a lot of unknowns. Will we be able to end this sticky war? Will we help not to prevent more violence in the future? Will we get out of this economic mess? Will our neighbors be able to keep their homes? Will our kids learn from our financial mistakes? How can we teach them?

I’m also excited about the prospects of what President-Elect Obama can do for our country, but I’ll admit, I’m more cautiously optimistic. What is the best out-of-the-box idea for getting us out of the economic hole we’ve dug for ourselves? I won’t pretend to be smart enough to come up with an idea to rival the top economists in the world. And I don’t think just one solution can solve such a mammoth problem. But I do feel that there is very little talk about the individual’s personal responsibility in all of this and we must address that part of this problem if we expect to resolve such a big issue.

What did YOU and I do to add to this crisis?
The politicians spent too much money on the war; the banks sold bad mortgages; the credit card companies loaned too much money; the big corporations paid too much compensation; the auto dealerships sold too many gas-guzzling SUV’s, and on and on. However, what did you and I do to contribute to the economic mess? Are we all just victims of a greedy system? Were we all forced to buy new cars every three years, remodel our kitchens based on a line of credit, and put a new flat screen TV on the Visa knowing that the bonus we hope to receive from our “secure” job next year will pay the bill?

I’ve heard no talk about what the new administration will make individuals do to help heal this economic wound. And each of us needs to take responsibility in helping to resolve our country’s economic crisis. We can’t just sit back and wait for some magical bail-out that will save our house or pay off our Mastercard. I have an idea to encourage every citizen to face their own financial responsibility to themselves and this country, which will in turn address some of the long-term concepts Americans have developed regarding the way we manage and understand money.

Don’t just send us money for nothing
I believe part of the current plan is to send out additional stimulus checks to the people hoping that this money will cause us all to spend, thus jump-starting our economy. Instead of just sending out free checks for nothing, insist that we learn something for this money the government’s giving us. Every American needs to take a financial education course and when complete they will receive a stimulus check. The cost of a nationwide financial education program will be just a fraction of what the whole stimulus program would cost.

Force every American to take a financial education course – every single one us regardless of age, education level, job title or economic status. From the upper class, wealthy, educated with trust funds, to the struggling working-class living paycheck to paycheck, we all lack many of the fundamentals needed to manage our money on a day-to-day basis.

If a program like this is going to work, we can’t continue to teach on topics like “What’s a good interest rate for an investment?” or “What’s the difference between a fixed mortgage and a variable-rate mortgage?” The key to this program is to make sure the financial education topics covered in this course are specifically related to budgeting, bill paying and managing money on a day-to day basis. These are topics not typically covered whenever anyone talks about personal finance, and the lack of knowledge in these areas, across all economic classes, is astounding.

Do the math and stay organized
There’s a lot of talk about how bad mortgages got us into the economic crisis we’re in today. But I believe there was a lot more going on then individuals being swindled by bad brokers.

Many people bought houses with mortgages they probably could afford, but then went out and used credit cards to re-carpet, furnish and remodel the homes, not realizing how the payments on the additional debt may cause problems when their adjustable rate mortgages increased. They never did the math to see what they could afford in the future.

Others believe that if they live in a certain kind of house in a certain kind of neighborhood they should automatically be able to afford a certain kind of lifestyle. So they buy the car, the flat screen TV, they eat in certain restaurants, buy certain brands of clothes and they’ve never sat down to actually do the math to figure out if they can afford everything they have.

And many others still just became overwhelmed with all the paperwork involved in managing all this new debt. If you buy or own a house the amount of mail alone that comes in on a weekly basis can be a chore to deal with. And if ignored you can believe there’s a water bill mixed in with all the credit card offers and junk mail that can get forgotten. How many people were prepared to be organized to handle paying their bills?

A different kind of financial education
There are many financial education programs that already exist, but most don’t even come close to teaching what the average American needs to know. Yes, it would be great to teach people how to understand the best investment for their 401(k)’s or the benefits of saving young for retirement years, but that’s not what people need to learn right now.

A financial education course should address forcing individuals to actually do the math to know what is going on in their personal financial life. It should teach topics like keeping all paperwork in one place and setting aside time each week (day?) to look at your bank balance and your bills due. It should address the skills needed to keep track of what’s going on in a checking account and to review your debt and have a clear picture of what’s owed and when.

A nationwide financial education program can be implemented through the internet, over the phone, through the mail, or in person. Similar programs have already been created through our bankruptcy program where people are required to take a credit course before filing. State’s Departments of Motor Vehicles have implemented nationwide driving tests that people have to take before getting a license. We could implement a nationwide financial education test that people can take, upon passing they would receive a $500 check, for example.

Most of the clients I deal with have money, good jobs and education and do not want to deal with looking at their daily financial situation until a crisis happens and they are forced to. Force them to take a course on how to budget and pay bills before they really need it.

Start Money Smart, Inc. has designed programs that address these exact issues and is prepared to teach them to adults as well as teens. For more information, go to www.StartMoneySmart.com.

Watch the spending more than the making

2008-09-29T15:57:00.000-07:00

I’m sitting here watching CNN talk about the economic crisis our country is just beginning to deal with. The 700 billion dollar bailout has not received the votes and the country’s economic future is completely unknown.

Do I have answers? Absolutely not. But I do realize the significance of how important the message I’m trying to relay is to each individual’s economic survival – pay attention to what you spend more than what you make.

This country’s economic philosophy over the last 20 – 30 years has been based on borrowing to buy what you can’t afford. As long as you have assets, income, money – everything will be okay. In the midst of all the debt accumulation, most people I meet can’t tell me how much money they spend to live. However, they are very clear on how much they make, and if money’s tight they feel like the answer is to focus on making more money.

Let’s look at the loans we give out to the average American. Let’s forget about sub-prime mortgages. When we give out a credit card or a car loan or a mortgage, what questions do the banks ask? When my husband and I borrowed money to buy our house, they asked us about our income, and they asked for proof. They also asked about our other assets. They looked to see if we had debt on our credit report, and that was it. It was left up to me to determine how much I spend on groceries, car maintenance, child care and Christmas gifts. And that’s where a lot of our money goes! Banks need to ask those same questions.

Most people who get in over their head in debt have never taken out the time to add up what they spend every month. And the banks don’t bother to ask us either. I mentioned in a previous blog entry how people will make the statement, “Don’t borrow what you can’t afford,” but I’ll argue that most people don’t know what they can’t afford.

The most helpful change in our lending practices will be to insist that people who borrow money have truly calculated their actual expenses. Make that part of the application! Not just credit card debt and car loans, but everything they spend money on - food, clothes, dinners out, everything! People don't have to prove it, just calculate it. I would firmly believe that only then would many realize they can’t afford to pay back money they’ve borrowed.

What are kids REALLY thinking about money?

2008-08-28T20:34:00.000-07:00

"When I grow up, my bills won't be so high."
"In real life people don't spend money every day."
"When I graduate from college, I'll make a lot more than this."

After teaching 10 – 12 year old scholars through the BELL program, I gained some pretty good insight into misconceptions kids have about money.

For six weeks I had the kids manage a checking account. They received “paychecks” every other week, they had to ”spend” money every day on grocery shopping, supplies, and other incidentals, and they received utility bills that were due periodically throughout the program.

The kids loved managing the paperwork and doing the math to keep their check registers updated. Their “shopping” cards would say things like “You dropped your cell phone in the toilet. Pay $85 for a new one,” or “Buy a gift for Mother’s Day. Pay $50.”

The biggest complaint heard was that the kids didn’t want to spend their money! After receiving their $500 paycheck ($391 after taxes), they felt that it was unrealistic that they should have to spend so much of the money. They made comments like, “In real life people don’t shop and spend money every day.” Other kids couldn’t believe the amounts of the bills were realistic. “I won’t spend $87 every month on an electric bill. I’ll use less than that.” And ultimately, many kids thought they would make much more than the amount I was giving them, saying things like, “When I graduate I’ll make $80,000 a year, so I won’t have to worry about bills.”

The reality is that we are not sharing with our kids the actuality of what it costs to live when they get older. Some of us teach our kids to save and possibly how to shop for bargains, but many kids don’t understand what goes into the day to day life of living on a realistic salary.

It really comes down to teaching our kids the value of money. The only way they are really going to understand this topic is to show them what we spend on a daily basis to live. Let your kids see what’s in the checking account. Help them understand what you as parents bring home as a salary and how it is spent to run the household.

Many parents are not comfortable exposing their personal financial details to their teenagers, but I believe the information is invaluable. How else will kids understand how much money actually comes into a home and how much is spent for it to run? Yes, you can tell them that $1,000 is not really a lot of money to live on, but until they actually try to pay some bills with it, they really won’t know. Usually teens are only aware of the money needed to provide for their needs, like a car and cell phones.

However, opening up your financial world to your teens could pose other problems as well – forcing you, as a parent, to take a clear look at your own financial situation. Many parents don’t have a clear picture themselves at what’s going on with their money. Why would they want to show their 16-year-old son details on how they spend money if they don’t want to go through the math themselves? Especially when money is tight.

We have to start changing our attitudes about having money, the daily managing of it, and communicating information about it to our family. It’s a huge obstacle to overcome in allowing our economy to heal during these difficult times.

Teaching Financial Literacy at BELL

2008-07-06T02:43:00.000-07:00

Over the next six weeks I’ll be crazy busy teaching kids about money. There’s a program called BELL here in Boston – Building Educated Leaders for Life. Their mission is to enhance the educational achievements, self-esteem, and life opportunities of elementary school children living in low-income, urban communities.

They offer a six week summer program that teaches kids literacy and math in the morning. In the afternoon the kids take enrichment classes on topics like music and art – or any other topic that may seem interesting. I approached them about teaching financial literacy and they agreed.

I’ll be working with 10 to 12 year old kids teaching them everything about checking accounts, budgeting, paychecks, and taxes, as well as credit cards, credit reports, savings and investing. I get one hour a day, four days a week for six weeks with these kids. The classes are split up by grade level, but there are almost 50 scholars total.

I created a program where the scholars get a “paycheck” every two weeks that they have to “deposit” into their pretend checking accounts. I created personalized paychecks, designed to look as real as possible, showing all the tax deductions, calculated as realistically as possible.

The scholars will also receive pretend checkbooks with check registers where they’ll learn to write out checks and maintain their check register. Throughout the six week program they’ll go “shopping” everyday, which involves reaching in a bag and pulling out cards I’ve designed that say things like “You’ve gone shopping at Stop & Shop. Pay $64.35.” “Your TV is on the blink. Pay $41.50 to the repairman.” Every weekend I’ll gather up their folders and paperwork and check all their math to make sure they’re maintaining their checkbooks properly.

I’ve also designed realistic utility bills personalized to each scholar. They each receive five bills with different due dates. The scholar has to remember to pay their bill by the appropriate date, or they pay a late fee. They also pay fines if they lose or forget their folders or checkbooks, if they mismanage their money (don’t update their register, etc.) or if they misbehave in class (Tickets of Disrespect). Twice they’ll be given mini-tests where they can earn bonus checks based on their performance.

I’ve priced the program so that by the end of the class, if a scholar does everything perfectly, they should have $100 left in their “checking account”. Although BELL offers a small stipend for the program, it basically just covers some of the supplies. I would love it if a sponsor would step in and actually provide real dollars for a percentage of the amounts in each scholar’s checking account. I’ve suggested it to the Program Directors, but no promises yet.

Tune in for more updates on how the classes are going and how the students are responding.

There’s no money in teaching people about money

2008-03-13T03:58:00.000-07:00

I’ve learned another reason why there is no emphasis in our society to teach personal finance to teens or anyone, for that matter – there’s no money in it! Well, I guess this isn’t true for Suze Orman or Robert Kiyosaki – I need to get that best selling book finished! But generally teaching the basics of personal finance does not a lucrative career make.

You’ll find people out there willing to teach all about insurance and annuities so that you will, in turn, buy some insurance or put money in an annuity. You can even find banks encouraging people to learn about checking accounts. But, as I’m sure some people in the banking industry have figured out, the less people understand about all the fees involved from not managing your checking account properly, the more the bank benefits. $$$

Now who in the credit card industry really wants us to understand – really understand – all the terms and conditions of a credit card agreement? This has become a much bigger issue over the last few years as there has been more and more emphasis on encouraging people to understand what happens if you go into too much debt. However, there’s so much more to know about credit cards than “don’t get into too much debt” –
· What’s the difference between credit cards, charge cards, debit cards, pre-paids?
· Where do you look to find out about all the fees BEFORE you sign up?
· What are all the fees that may take place if I do something wrong?
· What are some of the things that may go wrong?
· What does “No Payments, No Interest” really mean?
· How can I REALLY get my credit report for free?

I have not found anyone who teaches people how to stay organized so bills get paid. I think as a culture we haven’t come to the realization that this is something we don’t know. We still believe that paying bills is a money issue instead of an organizational issue. But that’s a whole other blog topic.

What about explaining what comes out of your paycheck when you get a job? Who would benefit from this knowledge? Obviously the employee, but who else? Pre-tax deductions, how taxes work, 401(k) accounts. Why would anyone take out the time to teach this to your kids? Teachers are already busy teaching stuff that kids need to know to go to college (which unfortunately does not include these topics). People who really understand these topics usually already have a job doing something else. Are they going to quit to do this? I did. But I think I’m the only crazy one out there.

As I lay in bed at 5AM thinking about all the stuff on my schedule – several workshops, networking events, even an appearance on a local cable show – very few of these activities actually pay me anything. So I can see why others who may have considered this path, would quickly scurry over to an alternative route.

But I’m on my mission. My path has been clearly defined and all obstacles have been removed to encourage me to stay on it. And even though the money is slow in coming, I’m sure it’ll be there in time. I tell my friends all the time, “I have the perfect life! Everything is going really, really well, except that we have no money.”

Include your kids!

2007-10-30T21:45:00.000-07:00

When I talk to parents about including their kids in what’s going on financially with the household, I get one of three responses:
1) I’m the parent, they’re the child. Money matters is a grown up issue and kids shouldn’t be involved.
2) Why would I want to burden my child with that kind of stress?
3) If I told my kids about the bills we have, they would say it wasn’t their problem as they weren’t the ones to make the decisions about what to buy!

Kids can handle more than you think. People tend to believe that managing money is something you’ll just figure out how to do when you become an adult. But we do nothing to prepare kids for this responsibility as they grow. Don’t let your belief that kids are too immature to handle this kind of information keep them in the dark. They must be prepared for managing money, and the best way to learn that is through their parents.

Stress is a choice. We work so hard to protect and shelter our kids from the trials of life, that we think this is benefiting them some how. Managing money can be a stressful experience, but it’s a necessary life skill. Show your kids how you handle a stressful money situation so they can be prepared to do the same as they get older.

Bring in the mail. The best way to get your kids involved with understanding household finances is to have them bring in the mail. That’s it. Choose the most irresponsible child you have, and make it their new chore to bring in the mail everyday. It’s their job to sort through it and identify the junk. Create a list of expected bills and give that to your child. Have your child check off each bill as it’s received, and keep them all together in a file. When all are received, have him or her bring the file to you so you can pay the bills.

Kids need to see what actually goes on financially to run a household. Let them see that maxed out Visa bill. Show them what bills didn’t get paid because you had to repair the water-heater. Give them an understanding of managing all the paperwork involved with paying bills. This is invaluable life skills that they’ll need in the next few years.

And for the parent that says, “my child would never be responsible enough to manage this task.” I say to you, if they can’t handle this task at the age of 16, how do you expect them to handle it at 23?

Paying Bills is not a Money Issue

2007-09-26T11:38:00.000-07:00

Paying bills is a task that most people will have to handle sometime in their life. However, the assumption has become that the task is simple, and requires no preparation, training, or even discussion.

In today’s society, the belief is that paying or not paying bills is a money issue. “People who don’t pay their bills, must not have any money, right?” Don’t fall into believing this myth. You’d be surprised how many people with money can’t get their bills paid on time.

Paying bills can be complicated – paying bills has become a more complex task than it was for our parents. With on-line banking, automatic deduction, and debit cards there are many ways to pay bills. Do you understand the rules involved with all these methods?

More bills at a younger age – Years ago, people didn’t have bills until they got married and moved into a house. Nowadays young adults can have a mailbox full of bills before they move out of their parent’s home. Phone bills, car payments, auto insurance, credit cards, student loans, and more. There’s a lot more to manage, and young minds aren’t always prepared for that responsibility.

Banks and credit card companies – yes, these institutions can be a big part of the problem. Companies have caught on that big money can be made from loans - especially the high-risk kind. Banks are more willing to give credit cards and make loans than ever before. The interest rates and fees involved ensure that anyone who doesn’t stay on top of paying their bills can really pay a price.

Paying bills is not a money issue, it's an organizational issue. Staying organized so your bills get paid is a skill that actually needs to be taught.

What should I teach my kids?

2007-08-24T14:59:00.000-07:00

This question is what most parents should be asking themselves about personal finance, because the truth is, their kids most likely are not going to learn it in school.

Many parents feel that if they teach their kids to save and they make sure their kids don’t spend too much money, they’ll be okay. Don’t assume that if your kids get a good education, and then a good job and a good salary, they’ll understand how to manage their money. Financial literacy is more than the accumulation of money.
So what are some ways parents can teach kids financial literacy?

HOW TO BUDGET
Keep your kids on an allowance! Every time I talk to a group of kids I ask how many of them are on an allowance, and very few raise their hands. We’ve moved away from this very informing practice! Kids need to be kept on an allowance, because it teaches them how to budget their money.

If your child is over the age of 12 (and in many cases, even younger), you’re probably giving them money for various activities daily. Figure out how much they spend on a weekly basis, and come up with a flat amount to give them as a weekly or monthly allowance. Let them be responsible for paying for their lunches and snacks, having money for mall trips, and paying for school related activities, like dances.

If they spend all their allowance on some new video game, and don’t have enough left to buy lunch at school, let them learn that they’ll have to pack a lunch or they won’t eat! Giving an allowance forces kids to think about their future (even a weekly future). They’ll have to plan for upcoming expenses and resist temptation to buy things they don’t need. They’ll also learn the benefit of not spending and saving for a big purchase in the future.

Do your kids spend a lot on the internet, downloading music, games, and screensavers? Do they run up phone bills text messaging friends? That should be part of their allowance as well. Don’t give them your credit card number. Pre-paid debit cards are a great tool to help your kids learn to control their spending in today’s cashless society.

Giving your child a certain amount every week on a pre-paid debit card is a great way to implement an allowance. You can buy pre-paid debit cards and phone cards in local drug stores like CVS. There are several pre-paid debit card programs designed just for teens. Many have great tools for parents to allow them to monitor their child’s spending and continually load money on the card. However, many charge fees for these services so read the fine print carefully.

Teach this stuff in schools!

2007-07-26T18:29:00.000-07:00

Why isn't Financial Literacy taught in today's school? This question has been plaguing me since I decided to create Start Money Smart. And many others are asking this same question. There are financial literacy web pages that generate great discussion on the topic. Many people really believe it should be a priority when educating our young people. So why hasn’t it happened? Why isn’t personal finance added to standard curriculums in American schools systems?

Well, I’ve done some research, and here’s what I’ve found…

1. Teens don’t need to know personal finance to go to college! Standard curriculums in schools are already filled with what kids are required to learn. Many schools will tell you there is no room for additional topics. Schools are under great pressure to generate students who are considered “educated”, which really means “prepared for college”. It doesn’t mean “prepared for life”. If it’s not on the MCAS test or an SAT exam, there’s not a lot of justification for teaching the topic in today’s public school system. And the truth is kids don’t need to know personal finance to go to college. However, they’re inundated with credit card applications when they arrive, and given no education on how to deal with them.

2. Our “money” world is changing too fast. If you’re old enough think back and remember what money was like thirty years ago. Credit cards and charge cards were only for the rich. A 25% interest rate on a credit card was considered loan-sharking. Did anyone ever hear of automatic deduction? What about twenty years ago? There were ATM cards, but no debit cards and no one did on-line banking. Okay, so ten years ago? Well, there were very few pre-paid debit cards, and kids were not running up their parent’s phone bill by texting their friends.
Our money world is changing too fast, and we haven’t been able to keep up with educating ourselves on how to handle it. So for those people who still think, it’s up to the parents to educate their kids on personal finance – I’ll argue that most parents don’t know what to teach their children. They haven’t learned the rules themselves yet.

3. We still believe more money will provide the knowledge. I believe our biggest problem with making a change to our educational system is getting over the idea that “If we just make more money, it’ll be okay.” Some of us are working so hard to educate our youth, and to what end? So they can go to good colleges, and get good jobs, and make good salaries. We still believe that if our kids make enough money, they’ll be okay. They’ll some how learn how to balance that checking account. They won’t buy things they can’t afford, because they’ll magically know how to create a budget for themselves. They’ll figure out taxes and what they need to do to pay their bills on time every month.

If we really want to make a difference in increasing financial literacy in America, we have to let go of the idea that being rich solves problems. In many cases it just creates the need for more education.

"Buy now, make no payments for…"

2007-06-18T14:37:00.000-07:00

I was reading comments posted on a message board about whether financial literacy needed to be taught in our schools. One of the comments regarding debt was, “Just teach people that they shouldn’t spend what they don’t have.” That person went on to say, “It’s not brain surgery, is it?”

In today’s society there’s an underlying belief that people who get themselves into debt are either too lazy, too dumb, or too spoiled to understand how to stay out of debt. I believe many people are under the impression managing debt is really as simple as “don’t spend what you don’t have.”

Do you know what you have? Many of my clients have no idea how much money they have. There’s more to it than just looking at your annual salary. In fact, your income really tells you nothing about what you have. You have to look at your expenses. And many people don’t take out the time to calculate their expenses. We should all realize, it’s not what you make, it’s what you owe. Two people that both make $60K a year can have very different lifestyles based on their expenses.

Our whole culture is designed to encourage people to spend money you don’t have. Do you think the average American is going to wait until they have the money to buy a new washer and dryer when the old one breaks down? How many people can be convinced to wash their clothes in the sink until they’ve saved up enough to buy a new washer? “Buy now, and make no payments, pay no interest for 12 months!”

Debt doesn’t ruin lives, not managing debt does. This point may be arguable, but I firmly believe it. Being in debt is not causing all the problems with debt in our society. It’s the inability to manage debt that ruins many people. Now, I can believe that this statement can’t be applied across the board. There are many people out there, that don’t have sufficient income to pay their bills. But I’ll argue that even more go shopping when the stack of bills arrive because they can’t deal with the stress. Or people who can’t resist a new pair of shoes or paying the tab on Guy’s Night Out, even though they know they can’t afford it. Just one month of ignoring bills can rack up a huge amount in late fees and interest that could have helped people get out of debt. I’ve learned that stress, denial, and vanity keep people from managing their debt much more than lack of money.

Big salary = Big success ??

2007-05-16T10:40:00.000-07:00

It's not what you make, it's what you owe! I realized this when I was in my early twenties. I was making about $8.50 an hour working for an insurance company as a Licensing Specialist. Among my crowd, this was considered a very good job and a pretty good salary. However, I couldn't make ends meet. So I went out and got a second job.

When a friend asked me about my salary at the insurance company, her comment was, "Why do you need to work the second job when you make such good money at the insurance company?" My response was, "Well, it's not what you make, it's what you owe?" My friend didn't ask about the amount of debt I was in, and how much money it took to pay my bills each month.

It's amazing how, in our society, we only focus on salaries when we think about financial success. If someone makes $100,000 a year, they must be very successful, right? However, what if that same person has two mortgages, makes payments on two cars, pays credit card bills, auto insurance, electricity, water, gas, cable, internet, telephone, commuting, food, supplies... How much extra do you think they have in their pocket on a Friday night? Don't be surprised if it's not much.

Conversely, someone making $10 an hour that has no debt, lives with their parents, and takes the T to work could have much more extra money to play with.

So what's the point? A big salary doesn't equal financial success. And someone who makes plenty of money is not necessarily going to have more to spend.

Men vs. Women vs. Money

2007-04-13T09:51:00.000-07:00

Men understand money better than women - does anyone believe this anymore? We're in the 21st century. A woman is seriously being considered for President of the United States. Is there anyone around that still thinks women can't do everything men can do?

Absolutely. And even if you think you're not one of them, think again.

Men and women still play specific roles in our society. Men are strong - women are beautiful. Men provide children - women raise children. Men make the money - women spend the money. And even though we are flooded with examples of instances where women and men don't reflect these stereotypes - the underlying social assumption is still there. Within many cultures in this country, plenty of people still believe these things. And even if you don't, be prepared that your financial partner does.

Some people are relieved to get into a relationship with someone who makes the money - woman or man. The feeling is that if they make money, they know how to manage money. Since men still make more money than women in this country, most of the time it's the woman gladly stepping aside and letting her male partner handle the bills.

However, regardless of the gender it still takes two to make any relationship work - that includes a financial relationship. Managing your personal finances is not a gender issue.

Smart people don't have money problems - HA!

2007-03-08T06:20:00.000-08:00

An incredibly incorrect assumption made in our society is that people who have financial problems must be uneducated. However, most of my clients are very well educated and manage much responsibility, but they have problems getting bills paid on time every month.

What do you need to pay your bills? Enough money? Enough brains? Enough time? The truth is - all three! However, having money and brains can't do it alone. So many people I know don't allocate enough time to the task of managing their personal finances. In addition to assuming this is common sense, is the assumption that it's simple and will take a minimal amount of effort.
Many people don't want to spend a lot of time thinking about paying bills, so they put their energy elsewhere. The little consequences can really add up for some people. And intelligence has nothing to do with it.

True Story - A friend of mine was the personal assistant for a successful Investment Advisor. She had told me about how her boss had gone on a one week trip out of the country with his family to invest in a real estate opportunity. While he was gone he received the third notice on a $66 water bill he had been neglecting. His family returned on a Saturday morning to find that their water had been turned off. He called the Water Company who explained that they couldn't turn the water on until Monday morning. So on Monday my friend received instructions to drive the money to the Water Company and pay the delinquent bill. On the way, her boss's wife called her to find out how much longer before the water would get turned on. "This is ridiculous," she complained. "He's buying five million dollar condos, and I can't wash my hair!"

Don't make the assumption that sending your kids to a good college will teach them how to get their bills paid. Schools don't teach these topics and they are not common sense!

If I just had more money...

2007-02-14T09:08:00.000-08:00

The basic assumption is if we just had more money, all our problems would go away. Many parents tell me, "I teach my kids to save their money," thinking that equals "They'll know how to pay their bills." But teaching someone to save is teaching them how to NOT spend money. Paying bills requires knowing how to spend your money, as well as knowing how banks work, how to manage a checking account, and how to be smart about credit cards.

We daydream about buying a new house, new cars, and being able to travel, not realizing the amount of money management that is still necessary with the luxurious lifestyle.
Someone with a high income who lives in a really expensive house can get overwhelmed with all the bills and paperwork involved with maintaining their personal finances just as easily as a person making a low income living in a modest apartment.

I went to visit a client at his home. He had three months of mail piled up on his desk. He said bill collectors call him regularly and he's been trying to stay on top of things, but it's out of control. I sat down and spent an hour and a half organizing his mail and making a list of his bills. When I got to his bank statement, I noticed he had $65,000 in his checking account. I asked him, why he hasn't paid his bills? His response was, "I don't even know what I owe. It takes up all my time just to manage my business!"

Managing your personal finances isn't about how to get more money, it's about managing the money you have.

Oh, you're teaching Common Sense!

2007-01-04T06:47:00.000-08:00

I'm in a local bookstore searching through the Personal Finance section. It's a rather large section so I stand there for a good 30 minutes scanning every book, trying to find one that will cover many of the items that my clients need help with. No luck. I find books on how to get rich quick (or slow), how to invest in the stock market, and how to save for retirement/college education. But these aren't the questions, we need answers to.

"What do I do right now if I don't have enough money to pay my bills?"

"Paying taxes, how does that work?"

"What does it mean to balance a checkbook? Do I need to?"

I have clients of all incomes and backgrounds, and these are the questions they don't ask, but need to.

Most people have to deal with basics of managing their personal finances, but we don't do anything to educate ourselves in these areas. It's assumed that our parents will teach us, or the information is so simple, that we'll just figure it out when we need to. As a result, we've created a whole generation of people who believe this information is common sense.

The more serious issue is that because we all believe this is common sense, we're not asking to be educated. And we, as a culture, have developed a real sense of embarrassment around this topic. If we write out a check incorrectly, or forget to pay the electric bill one month, we don't talk about it. We berate ourselves for not knowing better, and try to do better next time.

Education is the key.